Market-related barriers in China energy

Market-related barriers

Many of the markets that socially-driven energy enterprises commonly exploit are either highly competitive or too regulated to penetrate. For example, in many other countries, such as India and Haiti, socially-driven enterprises provide electricity in the form of solar home systems (SHS) or solar or biogas-powered microgrids (these are a few examples of many in terms of technologies that are used). The electricity market is dominated by government-backed utilities and larger enterprises. Regulations require that electricity-producing businesses connect their generators to the grid. This would force smaller enterprises into competition with the larger enterprises that already sell to the grid. Because the economy of scale is advantageous in the electricity generation market, a smaller generator would likely be driven out of business. Furthermore, grid connection makes SHS, gasification, and biomass generation technologies obsolete, so these enterprises would only be able to operate in non-grid areas for a limited amount of time anyways as China’s remaining unelectrified rural areas gain access to grid power.


The coal cookstove market is highly competitive and commercialized, and flooded with low-priced, low quality products. Poorly made knockoff and bootleg stoves are common. Regulation is inadequate and government support is almost nonexistent. Fluctuations in demand due to changing weather patterns and volatile coal prices is common; this can make things difficult on smaller enterprises. The biomass market, on the other hand, is highly dependent on government support. Limited and fluctuating supplies require an enterprise to establish an effective supply chain before growth can accelerate. With regards to biodigesters, the problem lies in the lack of a properly functioning service network. An enterprise seeking to sell biodigesters may have to take matters into their own hands by working to improve the existing system themselves. Although, there are plenty of subsidies to be taken advantage of in the biodigester sector.


Challenging local business environments

Historically, the Chinese have held the view that business and philanthropy should exist in separate spheres. Social entrepreneurship is a phenomenon that bridges the gap between these spheres. This makes gaining the trust of the public, and thus a building a good business reputation and loyal customer base, especially difficult. This problem has been exacerbated by a series of scandals that happened in 2011 in which several NGOs were accused of becoming too commercial and engaging in unethical practices. Establishing the right relationships with Chinese business partners and local government officials is essential to success in challenging local environments.

Due to cultural, economic, and geographic factors, certain products may not be suitable for certain regions. Developing a culturally appropriate product can be challenging, especially for foreign-born entrepreneurs who are unfamiliar with local traditions, customs, and community dynamics. Moreover, the supply of resources such as coal and biomass are also limited in the poorer regions of Western China, notably Tibet and the Tarim Basin. This makes having an impact across China very difficult because it makes developing a one-size-fits-all product is not easy. Many enterprises would be better off focusing on one or a few regions of China, depending on what sort of product they are planning to market.


Regulatory barriers

The aforementioned business regulations make it extremely difficult for social enterprises and SMEs to establish themselves and take advantage of government subsidies and tax exemptions. There is currently no single government-sanctioned enterprise type that is suitable for a social business. Thankfully, the Chinese government is taking the initiative to make regulations more accommodating for socially-driven entrepreneurs.


Due to protectionist government regulations and practices, some sectors are off the table altogether for foreign enterprises. This includes the financial sector, and for the most part, the electricity sector. Public procurement is extremely difficult for foreign-run enterprises because of China’s Indigenous Innovation Policy. Furthermore, as mentioned before, inward FDI is also difficult to acquire for foreign-run enterprises. This restricts the operational capabilities of many social businesses and SMEs and requires that they either find a workaround, establish themselves in niche markets, or both.